Largest Downstate Banking Firm Sold To Michigan Concern

January 24, 1989|By Christine Winter.

First of America Bank Corp., Kalamazoo, Mich., said Monday that it is buying Midwest Financial Group Inc., Peoria, for about $250 million in stock. The transaction will make the Michigan-based holding company the fifth largest banking company in Illinois.

Midwest Financial Group, with assets of $2.3 billion, is the largest banking company in Illinois outside Chicago. It has banks in Bloomington, Champaign, Decatur, De Kalb, Kankakee, Morton, Rockford, Springfield and Peoria.

Analysts call the deal a ``good fit,`` because First of America, though a large regional company, is made up of small community banks mostly in smaller urban and rural areas.

However, First of America shareholders were less enthusiastic. The stock fell $2.37 a share, to $41.50, in over-the-counter trading on the news that the banking company expects 1989 earnings to be about 12 percent less than anticipated after the acquisition.

``We feel that we have a very good track record in eliminating this kind of dilution of our earnings very quickly,`` said Richard Chormann, president of First of America. The company added that by 1991 it expects its earnings to benefit from the Midwest acquisition by 25 to 30 cents per share over current projections.

``Stockholders may be telling First of America to go slowly in terms of following this with anything else quickly,`` said Joseph LaManna, bank analyst at William Blair & Co.

Analysts say that Midwest, which has undergone a dramatic turnaround in recent years, has been the subject of takeover talk since Commerce Bancshares Inc., Kansas City, Mo., announced it held a 4.8 percent stake in Midwest in September.

Commerce also said at that time that it planned to apply to the Federal Reserve Board to buy up to 20 percent of Midwest`s stock. Analysts describe that potential unsolicited offer as ``the closest thing to a hostile`` bid they`ve seen in Midwest banking.

``The Commerce stake didn`t exactly put Midwest in play, but it did march them up to the altar, and it was just a matter of choosing a partner,`` said Joseph Stieven, a bank analyst at Stifel, Nicolaus & Co. in St. Louis. Midwest announced recently that it was talking to several other third parties interested in acquiring it.

According to Chormann, the fast-growing Michigan banking company was approached by Goldman Sachs & Co. on behalf of Midwest, which he said was

``stimulated by the Commerce offer to seek a potential merger.``

For 1988, Midwest posted record earnings of $18.1 million, or $3.77 a share, up from $15.5 million, or $3.43 a share, in 1987.

Analysts credit Leonard Marshall, chairman and chief executive of Midwest, with ``one of the prettiest turnarounds`` in recent years.

``We`ve been aggressive in recommending Midwest stock since Marshall came in December, 1985,`` said Stieven. ``In 1985, Midwest lost $16 million, but after Marshall`s first year in charge, it earned $7.6 million on operations

($11.6 million with tax benefits).``

Chormann said that without Marshall and key members of his management team, ``the deal would not have been nearly as attractive to us.`` He said they will be staying at Midwest.

First of America will pay for the acquisition with its stock. The price calculated will be equivalent to $48 a share, or $250 million, unless Midwest completes a pending purchase of Peoples Mid-Illinois Corp., Bloomington, in which case the price will be equivalent to $46 a share.

Midwest, which plans to issue 1 million shares of additional stock to consummate the Peoples deal, can terminate that deal if Peoples stock goes above $41 a share before the closing date or Peoples can terminate the deal if the price falls below that.

Chormann indicated that First of America is interested in Peoples, but

``couldn`t justify leaving the exchange ratio intact, since it would have made the deal much more dilutive.``

Analysts also have suggested that the Kalamazoo bank is eager to strengthen its position in Illinois before a 1990 date that will allow bank holding companies in all states with reciprocal agreements to buy Illinois banks. Until then, only holding companies in adjoining states can buy banks in Illinois.